Pravin Electricals Pvt. Ltd. vs Galaxy Infra and Engineering Pvt. Ltd.

HELD: 1. The 246 th Law Commission Report not only discussed the changes that are to be made bearing in mind the difficulties that arose earlier, but also provided for amendments that were to be made to Sections 8 and 11. Section 37 which is the appeal provision, was also sought to be amended. When Parliament enacted the 2015 amendment pursuant to the Law Commission Report, it followed the Scheme of the Law Commission’s Report qua Section 8 and Section 37 by enacting the words “..... unless it finds that prima facie no valid arbitration agreement exists......” in Section 8(1) and the insertion of subclause (a) in Section 37(1) providing an appeal in an order made under Section 8, which refuses to refer parties to arbitration. However, so far as Section 11(6) and Section 11(6A) are concerned, what was recommended by the Law Commission was not incorporated. Section 11(6A) merely confines examination of the Court to the existence of an arbitration agreement. Section 11(7) was retained, by which no appeal could be filed under an order made under Section 11(6) read with Section 11(6A), whether the Court’s determination led to a finding that the arbitration agreement existed or did not exist on the facts of a given case. Concomitantly, no amendment was made to Section 37(1), as recommended by the Law Commission. However, by a process of judicial interpretation, Vidya Drolia has now read the “prima facie test” into Section 11(6A) so as to bring the provisions of Sections 8(1) and 11(6) r/w 11(6A) on par. Considering that Section 11(7) and Section 37 have not been amended, an anomaly thus arises. Whereas in cases decided under Section 8, a refusal to refer parties to arbitration is appealable under Section 37(1)(a), a similar refusal to refer parties to arbitration under Section 11(6) read with Sections 6(A) and 7 is not appealable. In the light of what has been decided in Vidya Drolia, Parliament may need to have a re-look at Section 11(7) and Section 37 so that orders made under Sections 8 and 11 are brought on par qua appealability as well. [Paras 19-21][1191-G-H; 1194-G; 1195-D-H; 1196-A] Mayavati Trading (P) Ltd. v. Pradyuat Deb Burman (2019) 8 SCC 714 : [2019] 12 SCR 123; Vidya Drolia v. Durga Trading Corporation (2021) 2 SCC 1 – relied on.

Vidya Drolia v. Durga Trading Corporation (2019) 20 SCC 406 – referred to.

246th Law Commission Report – referred to.

2.1 There are no negotiations which lead upto the 7th July, 2014 Agreement (the alleged Consultancy Agreement) that are on record. Negotiations that take place take place only after 7th July, 2014 in which a draft agreement is deliberated upon between the same parties. It would stretch incredulity to state that on the same subject matter negotiations and a draft agreement would be spoken about after a final signed agreement has been agreed upon between the parties. The Notary who is said to have notarized the Agreement was not licensed to do so the same, his license having expired earlier, a fact that is accepted even by the Respondents. Even otherwise, some of the Single Judge’s conclusions are plainly incorrect and against the record. An invoice was raised on M/s Process Construction and Technical Services Pvt. Ltd. (Process), Process making payment on 29th September, 2014 and not the Appellant. Equally, the finding that a draft Consultancy Agreement was sent on 15th July, 2014 containing an arbitration clause, parties being ad idem regarding submission of the disputes to arbitration is also plainly incorrect in view of the fact that on the same day, an email was sent back in which various terms were disputed, there being no concluded contract between the parties. Also, the finding that Process was a sub-contractor of the Respondent, is contrary to the pleadings between the parties which had ranged from Process being a joint venture partner of the Appellant to Process having common Directors with the Appellant, and to Process thereafter being described as the lead partner. Sub-contractor-ship is not pleaded at all by the Respondent, the aforesaid arising only from written submissions made before the Single Judge. The allegation that the Consultancy Agreement of 7th July, 2014 had a signature that may not be that of Mr. MGS was brushed aside stating that an arbitration agreement need not be signed by the parties. That is entirely besides the point. Mr. MGS sworn to an affidavit filed before the High Court that the signatures appearing on the 7th July, 2014 agreement are not his signatures, as a result of which the Appellant cannot be said to have entered into an agreement at all on 7th July, 2014. Again, the Single Judge’s finding that there exists an arbitration agreement between the parties as contained in the “draft agreement” exchanged by email dated 7th July, 2014, is incorrect for two reasons. The draft agreement sent by email was exchanged on 15th July, 2014 and not on 7th July, 2014. Secondly, the email in reply to the email of 15th July, 2014 shows that there was no concluded contract between the parties. Also, the pleading with which the parties went to Court was that there was a concluded contract between the parties on 7th July, 2014. There was no pleading that on 15th July, 2014, a draft agreement was exchanged between the parties, as a result of which a concluded contract emanated therefrom. [Paras 23-26][1196-D-G; 1197-A-G]

2.2 The emails dated 22nd July, 2014 and 25th July, 2014 produced here for the first time as well as certain correspondence between SBPDCL and the Respondent do show that there is some dealing between the Appellant and the Respondent qua a tender floated by SBPDCL, but that is not sufficient to conclude that there is a concluded contract between the parties, which contains an arbitration clause. Given the inconclusive nature of the finding by CFSL together with the signing of the agreement in Haryana by parties whose registered offices are at Bombay and Bihar qua works to be executed in Bihar; given the fact that the Notary who signed the agreement was not authorised to do so and various other conundrums that arise on the facts of this case, it is unsafe to conclude, one way or the other, that an arbitration agreement exists between the parties. The prima facie review spoken of in Vidya Dhrolia can lead to only one conclusion on the facts of this case - that a deeper consideration of whether an arbitration agreement exists between the parties must be left to an Arbitrator who is to examine the documentary evidence produced before him in detail after witnesses are cross-examined on the same. For all these reasons, the impugned judgment of the Delhi High Court is set aside in so far as it conclusively finds that there is an Arbitration Agreement between the parties. However, the ultimate order appointing a retired Delhi High Court Judge as a Sole Arbitrator is upheld. The Judge will first determine as a preliminary issue as to whether an Arbitration Agreement exists between the parties, and go on to decide the merits of the case only if it is first found that such an agreement exists. [Para 27][1198-B-F]